While individuals and governments are more conscious than ever about reducing their direct and indirect CO2 emissions, most CO2 worldwide isn’t generated by either of these parties but by businesses. Hence, the actions of private companies matter hugely in the climate war. So, nowadays many corporations are beating the ESG drum, and their executives proudly exclaim their commitment to net-zero by the target year of 2050. However, such promises can be greenwashing exercises or incentives for “brownscraping” that mislead consumers, investors, and regulators about a company’s true ecological impact. Even setting science-based emission targets can mask the systemic issues, which is why the growing market for environmental standards and certifications is both welcome and needed.
Many firms blindly claim allegiance to the net-zero target without addressing the core environmental footprint of their products and services. For example, despite promoting their commitment, when Shell was asked how they plan to stop the products they sell from causing global warming by 2050, they didn’t have an answer. This is greenwashing, where companies make exaggerated claims about their environmental initiatives to appear sustainable, without making significant operational changes and turns sustainability into mere marketing jargon.
Brownscraping (coined by Oxford Professor Myles Allen), is a less familiar but equally pernicious term that involves the transfer of polluting assets from one owner to another to evade environmental scrutiny. In such manoeuvres, companies might offload dirty assets to other entities, thereby preserving a façade of sustainability while in fact undermining environmental accountability as the harm is continued by others. This may be done because a company’s shareholders no longer wish to be invested in such assets and yet, in reality, selling them off has resulted in a lot of fossil fuel assets, particularly coal, being transferred from Publicly Owned companies where there are shareholders and people get to go to meetings and vote on what they are doing. These have then been acquired by Privately Owned companies where the companies are largely unaccountable to the public.
The incentives for good ESG recognition, be it reputational or even financial through access to more investors or grants, means that when companies self-report their environmental performance, there’s a risk of inflated claims. Therefore, third-party ecological standards and certifications can provide transparency and accountability by ensuring that verifiable, science-based criteria back sustainability claims. For example, ISO 14001 certifies that companies have a tangible Environmental Management System and limits their ability to greenwash through baseless claims of commitment. Instead, it holds them to an environmental criteria focused on strategic planning, risk assessment, legal compliance, performance monitoring, and improving environmental performance.
The last decade has seen substantial growth in investor interest in sustainable assets, where the sustainable credibility of these assets is demonstrated in ESG metrics. Without independently verified environmental standards, investors risk pouring money into ventures that may perpetuate unsustainable practices under the misguided claims of net-zero commitments.
Without robust standards, the market remains vulnerable to practices and loopholes like brownscraping that hinder the global fight against climate change. Major firms like Orsted, once Dansk Olie & Naturgas, repositioned themselves by divesting from oil and gas to become ranked as the Most Sustainable Company in the World in 2020. Yet, the supposed environmental benefits disappear when these assets find a new home with less scrupulous operators. After all, wouldn’t you rather that responsible and environmentally conscious companies were the ones controlling assets capable of such pollution? This highlights that while the market for environmental certification is growing, there is a further need for more substantial ecological standards that can give a more accurate assessment of the overall picture and a company's green actions.
Greenwashing also creates a false sense of progress as consumers and policymakers may be misled into believing that companies are making a palpable difference in the face of climate change, when the status quo remains largely unchallenged. This misguidance can slow regulatory action and weaken public support for necessary policy reforms as its requirements seem less urgent. Yet the growing recognition of this practice has proportionately grown the demand for environmental certification standards as those deceived increasingly realise they need to be informed of the big picture.
It’s clear to a growing number that third-party certifications enable investors, consumers, and governments to verify claims with transparency that restores trust in corporate sustainability initiatives. But, beyond this, the need for well-established environmental standards are being increasingly recognised as bringing further advantages:
- Levelling the Playing Field: Uniform standards ensure all companies are held to the same high benchmarks so market share and favourability can be more fairly won through genuine innovation rather than superficial “green” claims.
- Driving Innovation: When businesses have to meet environmental criteria across their company, operations, and products/services, they’re more likely to invest in effective decarbonisation technologies with a tangible impact on global warming.
As such, several European countries are already mandating environmental reporting and third-party audits for sustainability claims and the reach of this trend grows as the demand for authentic corporate accountability intensifies.
This all highlights that voluntary commitments and self-regulation are not enough in the fight against climate change. We need independent environmental standards and certification systems to ensure businesses actually contribute to a sustainable future. These measures will ensure companies take a step beyond merely setting net-zero targets and outline measures of verified meaningful action.
